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-UNIT 13 POLITICAL RISK AND TAX ASPECTS

Structure
--.
13.0- Objectives
13.1 Introduction
132 Political Risks inoday's World
13.3 Assessment of Political Risk
13.4 Measuring Political Risk
13.5 Managing Political Risk

3 13.5.1 Pre-investment Planning

9 13.5.2 Operating Policies
rl 13.6 Postexpropriation Policies
2 13.7 Multilateral Investment Guarantee Agency
1 13.8 Influence of Tax Policy on Foreign Investments

a 13.9 International Tax Rules and Financing and Investment Decisions

I 13.10 Possible Issues in the Taxation of Business Investment Abroad

13.11 Let Us Sum Up
13.12 Key Words
I 13.13 Terminal Questions~Exercises

13.0 OBJECTIVES

AAer studying this unit you should be able to :

explain political risk
analyse how political risk is assessed and measured
identi@ why multinational corporation invest in foreign countries
examine how tax policy affects foreign investments.

13.1 INTRODUCTION
1
As you know there are different types of currency risks namely transaction risk,
translation risk, ecanomic risk, political risk and interest risk. In block 2 you learnt in
detail about transaction risk, translation risk and economic risk. Let us now learn about
political risk.

Political risk is the risk associated with doing business in or with other country having
different culture, laws, traditions, customs and having a different currency. All
* international trade and investments face political risk though in different degrees. In this
unit, you wit1 learn about political risk and how this risk is assessed, measured and
managed and what is the effect of tax policy on foreign investments.

13.2 POLITICAL RISKS IN TODAY'S WORLD

The fragmentation of the international political system, the entrenched parochial
sentiments of national and supranational groups, and a community of nations where one-
third of the national governments change every year, have all combined to make the life
difficult for the intemahona~investors. At one time or another, multinational enterprises
and individual investors have been negatively influenced by events in various countries*
from Afghanistan to Iraq, Indonesia to Uganda, Zaire, etc.
arresting in Foreign American companies alone may have lost billions of dollars or more as a result of the
Operations downfall of the Shah of Iran. Recently, the investment company of GeorgeSoros lost a
couple of billions Bf dollars in the Russian debacle.

The political risks 'for international investors may be quite substantial, especially in the
nations which have gained independence in the post-war era.

Political risk is defined as the possibility of unwanted consequences of political activity

and events. There are three major categories of political risks. (a) forced disinvestment (b)
unwelcome regulation and (c) interference with operations. Forced disinvestment occurs
when a host government acquires assets of a company against company's will. It may
confiscate or expropriate. In confiscation government does not pay any comp;nsation. It
happened in Cuba in 1960 for sugar industry and Venezuela for petroleum company:,n
expropriation there is some compensation though it may not be just compensation. In
case of confiscation or expropriation the property may be nationalised or domesticated
(control is given to nationals). Mexico, Libya, Hungry and Poland adopted nationalisation.
In South Africa Barclays Bank, Coca Cola and General Motors were under domestication
policy. Between 1960 and 1992, domestication acts were 575, of which alone 83 were in
1975 in different countries.

Another classification of political risk is given by Root. These are (1) general instability
risk- Iran, Uganda. Afganistan and Fiji are the examples (2) ownership/control risk (3)
operation risk and (4) transfer risk.

The indicators of political instability are social unrest, attitude of nationals and policies of
host country.

The source of political risk is not always found in the host country. Sweden's giant
electrical firm. ASEA faced intense criticism at home for proposing to take part in a power
plant project in what was then the Portguese colony of Mozambique. After the nuclear
testing by India and Pakistan, the U.S. investments in these countric- re
finding
difficulties because of the U.S. sanctions against India and Pakistan.

However, in spite of the wholesale confiscation in Cuba in 1959 and 1960, as well as in
other countries, most government interference in the foreign direct investment sector
tends to be very selective and limited. There have been expropriation or nationalisations
against a particular firm or an industry, in most cases some compensation is provided to
former owners. In confiscations in Cuba or China under Mao, no compensation was
given.

Experience shows that even in the case of forced disinvestments in the Third World
nations, almost 90 per cent of the incidents had been vej selective and did not represent
wholesale nationalisations. Much more wide-spread but low-profile political risks to be
faced by international investors in the future will probably emanate from governments.
limiting the strategic flexibility of multinational enterprises. Because of government
regulations, firms will find it muck more difficult to protect product lines and t e c h n a l w l
innovations, marketing and transfer strategies and profit margins. IBM, for example,
withdrew completely from India in 1978 because it refused to comply with the then New C
Delhi government's insistence on a greater role in product development and equipmenr
allocation. Local content and ownership standards, foreign exchange and export
stipulations, and government export promotion and subsidy programmes which openly %

support home-grown firms as well as anti-dumping policies are among the tactical
measures available to the most governments which may affect the foreign investment
directly.
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13.3 ASSESSMENT OF POLITICAL RISK

One of the major concerns for multinationals intending to invest in other countries is the
assessment and measurement of political risk in these couhtries.

Most governments intervene in the national economies. For example, the Prime Minister
of Malaysia imposed capital controls which have in effect rejected the earlier policies
 ~egardingthe convertibility of currencies. Similarly governments kick-start their economres I'oliticnl Risk and T a \ :
Aspects
10 get them out of depression. They may impose monetary and fiscal policies which g c ~
against the bask assumptions of the projects by multinational corporations in those
countries, thus vitiating the considerations of viability on which these projects are based.
' h s the interventionist policies of governments in their domestic economies increase
h e political risk faced by multinational firms.

:Political risk takes various forms, from changes in tax regulations to exchange controls,
tiom imposing conditions on local production to expropriation, from adopting measures to
discriminate in favour of domestic companies against multinational companies (Swadeshi
Morcha. for example). The governlnents niay restrict the access of foreign controlled
companies to local borrowings.

All these policies adopted by governments of various countries lead to the change in the
value of an inve~tment,making it less attractive than before. It may adversely affect the
cash flow position of the foreign-controlled companies. This is a general definition of the
polltical risk, where the value of a fore~gninvestment, or its cash position is affected
because of the policies and actions of local governments. This effect can be positive or
adverse.

Though the political risk may affect the multinational companies, most companies
undertake foreign investment without detailed planning for or systematic analysis of risk.

Thus a formal assessment of political risk has to be undertaken by the companies

intehding to invest in other countries. This involves the following steps .

The recognition of political risk and its likely consequence; this stage is concer~led
with measuring political risk.
The develop~nentof policies to cope with political risk; this stage is concerned
with managing political risk.
Sliould expropriation occur, the development of tactics to maximise compensation;
this stage is concerried with developing post expropriation policies.

State of the Art

Political risk forecasting is a relatively recent phenomenon. The analysts use a variety of
approaches in their efforts to forecast political risks for businesses. Some even
distinguish political "risk" from political "uncertainty". The political uncertainty is defined
as an unmeasured subjective doubt about a political environment, while the political risk
is defined as 'a relatively objective measurement, usually resulting in a probability estimate
of that doubt'. Thus by converting political uncertainties into probability terms political
risk provides a mechanism for the objective evaluation of political investment climates.

' Rurnmel and Heenan identify at least five major approaches which are employed to assess
political risk.

i The first is the grand tour approach wherein a company engages in some preliminary
market research towards a country by dispatching an executive or a team on an in-
country inspection tour. Once the tour has been completed, the team meets with the top
management and discusses the potential strengths and weaknesses of the proposed
investment. -

The second is a hands-on approach in which the company places great trust in the
recommendations made by academicians, diplomats, business representatives and other
outsiders who have knowledge about the target country.

The third approach uses the Delphi techniques. The potential investing firm initially lists
selective elements which might influence a nation's political future, such as the size and
caposifion of the armed forces or the history of leadership succession. The firm then
asks-a number of outside experts to rank the importance of these factors for the country
under consideration. The data may then be aggregated and the country ranked on a high-
@.&&rate-or low risk basis,
Tlie fourth method uses quantitative metliods, somewliat a k ~ nto econometric forzasting
o f economic events. Multivariate analysis is used to predict political trends based on
current and historical information. I t analyses the rclationsliip anlong underlying political.
economic. soc~ologicaland cultural relationships.

'The fifth approach combines both subjective and objective approaches and provides a '
systemat~cframework for both tlic qualitative ant1 quantitative interpretation o f data.

Almost all tlic professional forecasting services incorporate tllc major features o f
integrated analysis. The 1:rost and Sullivan World Political Risk Forecasts cover more th@i
sixty countries and utilise the quantitative atid qualitative analyses o f 150 political --.

scientists, business representatives, government officials and other country spechli<ts, $

least three experts evaluate a country every few m o ~ ~ t landi s the Frost and Sullivan
permanent staff may also add its own input. An eighteen month forecast i s provided
eacli country, with emphasis placed on tlie probability of' regime change. political turmoit;
expropriation and equity repatriation restrictions. A five-yeiir forecast is also included..
\\tit11 eacli expert analysing,the likelihood that political change will result in niajor losses
to multinational enterprises, as a result o f socio-economic conditions. factional or political
activities or governlnent decisions. Major domestic actors are identified. tlieir position on
iss~lescrucial to businesses scrutinised and their potential for influencing change
estimated. The Frost and Sullivan country-reports averag.: thirty pages ancl each client is
provided with a concise political risk forecast similar to tlic lollowing. "There is a 1 5 per
cent chance o f a major business loss because o f political developments in tlie next 18
months, a 45 per cent chance o f a loss within five years".

Business International Corporatidn employs a panel of outside experts who rank more
than seventy countries twice a year according to risk. opportunity a ~ operating
~ d
conditions. These specialists provide rating for fifty-five topics ranging from government
attitudes tolvard the private sector to the composition. size a l ~ dintluence o f the middlc
class.

Tlie Business Environment Risk Index (BERI) was conce~vedby I>rofessor F. Tlieadore
Haner. BERl reviews more than forty-five countries three times a year. You will read about
BERl in tlie next section, as this is a widely accepted index for its quantification.

Among other indices. can be niention2d the Political Systcn~Stability Index (PSSI) which .
is geared exclusively towards developing nations. Fifteen indicators o f political stability
are distributed among three equally weighted indexes -socio-economic, governmental
processes atid socialite contlict. Tlie indicators for the societal conflict, for example. are
public u-nrest. internal violence and the coercion potential o f the society. Each country
then is ranked according to its political system.

Almost without exception, each o f these organisations atid scholars is convinced that
politics will play alrogressively greater role in effecting global strategies.

13.4 MEASURING POLITICAL RISK

There are two approaches to measure the political risk. Firstly. there is the country- .
specific route (called the macro approach), and secondly, one can take tlie firm speciJr,
route (called the micro-approach).

A number o f political risk forecasting models are used these days. These models supply
country risk indices that quantify the political risk in each country. These indices-consider,
political factors, economic factors as well as certain sub.jr:ctive factors relating to particular
countries.
Y ".
Political stability may depend on factor's such as frequent) ot' changes in yvernment.
tlie level of violence in the country (indicated by the vioient.deaths per 100,000 ,
population), number of armed revolts,-conflicts with othtr states etc. Thesc factors are
supposed to indicate the longevity-di' the government, and the ability o f the government
to enforce the guarantees given to foreign investors. \

. .
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 Economic Factors : Economic Factors include inflation, balance-of-payments deficits or Political Risk and Tan
Aspects
/ surplus, and the growth rate of Per Capita Gross National Product. These factors indiczite
whether the country is economically strong, or whether the country is on the brink of a
financial trouble that it would need to resort to measures like expropriation to increase
/ government revenues or introduce current account deficit position.
1
More subjective measures of political risk consider the country's attitude towards private
enterprise, more particularly private foreign enterprise; whether the government of the
country thinks that foreign investment is to be banned or kept limited to certain specific
sectors. (e.g. B.J.P. Government's National Agenda stating that the foreign investment will
be encouraged in infrastructure sectors).

Bu~sinessEnvironment Risk Index (BERI)

An index that tries to include political, economic and country related subjective factors is
called Business Environment Risk Index. The political risk refers to uncertainty over
property rights, which is caused if there is a risk of expropriation of the property or the
stream of income from the property. This uncertainty can arise out of a threat of
expropriation or the change in tax laws.

Another indicator of political risk is that of capital flight, when citizens of the country
export their savings out of the country when they fear the safety of their capital. This
happened in Latin American Continent, Iran, Afghanistan and is presently happening
South Asian countries. Generally the "Errors and Omissions" entry in a country's balance
01' payments is useful in estimating how much capital has fled out of the country.

Capital flight mainly takes place because of inadequate economic policies. When the
government regulations and controls and taxes lower the rate of investments in the home
country, the capital tends to flee. High inflation and serious payments imbalance has the
same effects. The political risk perceived by the residents because of the possible change
in regime (e.g. Iran in 1980, Afganistan in early eighties, Hongkong in 1997) can have the
sirme effects.

The flight of capital is the most obvious index of the political risk, because it indicates
that the residents of the country themselves don't trust the government. Hence
investment there must be unsafe.

l'he Table 13.1 shows the BERI Ranking, in November 1987 of some of the countries
classified into low risk. medium risk and high risk countries. A few countries in that year
carried high prohibitive risk, e.g. Egypt. Peru, Phillippines, etc.

Table 13.1 :BERl Rankings, November 1987

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I

l h w Risk Category*

Germany ........................................ 78
United States ............................... 78
Singapore ...................................... 74
Taiwan ........................................... 70
Medium Risk
Netherlands .................................. @J
Belgium ......................................... 68
United Kingdom .......................... 68
Canada .......................................... 67
Sweden ........................................ 67
Norway .......................................... Hungary ........................................
France ............................................ Brazil ........................................:.....
Ireland ........................................... Chile ..............................................
Australia ....................................... India ..............................................
Denmark ........................................ Portugal .........................................
Korea (South) .............................. Indonesia ......................................
Saudi Arabia ................................ Argentina .....................................
Spain ...........................................:.. Kenya ............................................
Malaysia ....................................... 56 Mexico ..........................................
Pakistan ........................................
H i g h Risk Category*
Venezuela .....................................
Greece ........................................... 54
Prohibitive Risk
Israel .............................................. 54
Thailand ........................................ 54
Egypt ............................................
Peru ...............................................
South Africa .............................. 52
Pliillippines ..................................
Turkey ........................................... 50
Iraq ................................................
Ecuador ......................................... 49
Italy.............................................. 49
Morocco .......................................
Nigeria ...........................................
Colotiibia ....................................... 48
Iran ................................................
Cote d'lvoire ................................ 48
Zaire ...............................................
*l)l:,RI Catcgovics : ,
100-80 Llnusuall> stablc and superior business e~lviro~irnc~il li)v the li)rcign iri\,'stor.
85-70 'l'ypical for an industrialized cconotny. Any tc~idc~ic:.~ io\vartl nalionalistn is o l l k t ill
varying dcgrcc by the coulit~y'sclliciency. 1nnrkc.1olqxwtunitics. l i ~ i a n c i i cnlirics.
~l etc.
60-56 Moderate-risk countries \\,ilh colnplica~ionsin da)-to-tla! ol,cri~lions. Iisuiill!: llic
political structure is suflicicntly sliihlc to pcrtliil I,usincss \rilllout 5crious disruplio~l.
55-41 Iligh risk li)r hrcign-owned busi~icsscs.Onl!. spccii~lsituations slioultl he consitlcrctl
(c.p.. scarce rnw ~natcri;~ls).
I3clo1r 41 Ilnacccpteblc business conditions.

SOIIIIC'E : I3uzi11cssI:~~vir~~timcnl
Risk Inli~r~iialioti.
Cicncvil. IOX7

The Micro Approach

The BERI is a sophisticated index. However. there is ilo direct relationship between
political illstability and political risk. I n Latin Anierican coun~riesgovcriiments
changed frequeiitly but toreign investors did not pull out. France a ~ i t lltaly had unstable
govelnnienls for a long time. It would appear that foreign iiivestinent w o ~ t l ddepend inorc
on risk-return trade-off o f particular investments than o n thc consideratioils o f political
risk. Eacli i i r m in a country does not face the saint deyrvc o f political risk. The extractlvc.
utility and tina~icialsector companies are more prone to risks o f expropriation than
coinpallies in other sectors. Rarely governments espropriatc foreign tirms indiscriminatcl!.
'Thus the political risk analysis has to pay more allcntion to the factors govcr~iingthc A

firni. the industry, etc.

Hamer Rating Method (1979)

This method incorporates on a scale o f 0 to 7. a number of' factors which can cause
internal political stress. These include :

a) Fractionalisation by language. ethnic or religious ql.otlps and the power o f rcsulliiig

factions:
b) Restrictive ineastires required to retain power:
C) Xcnophobia. nationalisni. inclination to conipromisc.
d) Social conditions, including extremes in population dciisity and the distribution o f
wealth:
e) Organisation and strength o f a radical let? governmmt.
 Kal.ings arising horn external factors are added to above. These include : I'nliticnl Risk nncl 'rn\
.\$pectr

a) Dependence onlor importance to a hostile major factor.

b) Negative influence o f regional political forces. possibilities o f border wars and
disruptions arising from such sources o f conflict.

Additional ratings relating to esti~iiatedsystems o f problems are computed and added up;
likc:

a) Societal conflict.
b) Political instability

The scores available from above ratings are aggregated. They are updated as the worltl
i political environment changes. Countries are then rated as follows :

I
i a) M i ~ i i ~ i irisk
al 0 to 19 rating points.
b) Acceptable risk : 20 to 34 rating points.
C) High risk : 35 to 44 rating points.
I d) Prohibitive rish - : 45 rating points and above.

Tke Hamer Rating method IS critically similar to BERl index. But the BERl index is
I comprehensive and aims at quantifying the factors responsible for political risk.

Euromoncy System
I
A nietliod siniilar to BERl is that o f the financial magazine "Euromoney". Its monthly
country-risk evaluation is based on the weighting given to various factors. Euromoney
polls a section of experts. These specialists are asked to given, their opinions on each
country with regard to the factors. Tlie three broad categories are considered :

a) analytical indicators (40 per cent).

b]~ credit indicators (2- per cent)
C) ~iiarketindicators (40 per cent)
:
These indicators are further divided into more detailed components as sliown in the
T,able 13.2.

Table 13.2 :Country-risk evaluation system used by Euromoney.

Weighing (%) Analytical indicalors

Economic Indicators 15
Debt service to export ratio
Balance of payments to GNP
Ester~ialdebt to GNP
Yoliticall risk
E.conomic risk
<:redit indicators
Debt service record
Ease o f rescheduling
Market indicators
Access to bond market
I Selldown o f short-term paper
Access to forfeiting market
j Total
I
lnvcstilig ill Foreign Another financial monthly. 'Institutional Investor' also plrblishes country risk ratings
Operations based on scores by a panel o f bankers, for credit worthiness. Other rating systems. which
are also available for subscription, have broadly similar approaches with small variationr.
-fIiese depend on a combination of objective data and sub-jective estimates. Some rating
systems incorporate some additional data as intlation rates, balance o f payments deficits
and surpluses and other macroeconomic factors. Basically the objective o f all these
exercises is to assess whether there is high risk involved. if adverse results happen
because o f government intervention. As can be expected. tlie level o f research in this
area is rudimentary and the conclusions of these ratings cannot always depended on.

The rating system developed by Morgan (1986) uses discriminant analys~sto assess the
influence o f variables on tlie likelihood that a country would need to reschedule its dcht
repayments. In today's situation o f international finance, technical or chronic insolvency
can be a factor to consider. Thus Morgan considers the following factors important in its
rating system :

a) A relatively high ratio of total debt to exports;

b) A relatively high proportion o f floating rates loans to total loans:
C) A relatively low rate o f growth in Gross Domestic Product (GDP).

Political risk has a different impact on different firms. A firtii relying on i~iil~orts
will be
adversely affected by trade restrictions, but an import-conipeting firm would be beneficiarj
o f such regulations. However as a result o f WTO restrictions, the scope o f trade
restrictions is getting reduced.

Multinational firms which invest abroad frequently factor the consequences o f political
risk in their investment decisions through :

a) Shortening the minimum pay back period.

b) Raising the required discount rate for investment.
c) Adjusting cash flows for the cost o f risk reduction, for example. by charging a
premium for overseas political risk insurance.
d) Using certainly equivalents in place o f expected c;~shflows.

13.5 MANAGING POLITICAL RISK

Having analysed the political environment o f a country i ~ n dhaving assessed tlie risk to
its operations, a firm should decide (a) whether to invest is that country, (b) if so, how to
device coping strategies to minimise the risk. A few generalisations are possible here. as
every firm, consistent with its field of activity, faces unique risk.

13.5.1 Pre-investment Planning

An MNC can follow each or all o f the following policies.
I) avoidance
2) insurance
3) negotiating the environment
4) structuring the investment.

Avoidance
Many firms tackle the political risk by avoiding to invesl in that country. The issue is
what amount o f risk, the company finds acceptable and is prepared to bear. If the tirlns
avoid investing in a high risk country, it also foregoes the high returns possibly available
on its investment. Thus most multinationals use avoidance strategy only I-arely i a ~ dtry to
recognise and assess the risk, e.g..investing in dictatorial China, or economically volatile
Soutli Asian countries i s risky. However, if the risk does not niaterialise. the returns are
considerable.
 I
Insurance I ' o l i l i c n l Hish :*~!cl I'n\

i Most developed countries sell political risk insurance to cover foreign assets of domestic
.\51,, :t\

I companies. The U.S. Government, through the Overseas Private Investment Corporation
I (OPIC) provides such a cover. Many multinational corporatio~istake advantage o f it.
L However, the risk can arise fro111the U.S. Government itself if it refuses to extend such a
! cover to foreign investments in a particular country. For example, in the wake o f sanctions
after India's liuclear explosion. in May 1998, the OPIC has not given such a cover to U.S.
illvestments in India.

The OPIC programme provides U.S. investors with insurance against the loss due to
specific political risks o f expropriation, currency inconvertibility, and political violence like
war, revolution, or insurrection. To qualify, the investment must be new or a substantial
expalision o f existing facilities. Coverage i s restricted to 90% o f the equity participation.
Similar OPIC protection is given for leases mainly for the inability to convert into dollars
the local currency received as lease payments.

OPIC also provides business inco~necoverage (BIC) to U.S. investors, if the income from
foreign investments i s disrupted because o f political violence. OPIC coverage is also
give11to U.S. exporters o f goods and services. etc.

The cost o f the coverage is different for industries and risks insured. For example, the
annual base rates per $ I00 o f coverage in 1988 were $ 0.30 for currency inconvertibility,
$ 0.60 for expropriation for manufacturing industries. The rate for political violence with
civil strife were $ 0.60 for manufacturing projects and $ 0.75 for oil and gas projects.
Tliese are shown in the Table 13.3.

The Lloyds o f London is the only private insurer against expropriation risks. The private
sector insurance business did not develop in the expropriation because o f the heavy
losses if the damages have to be paid. Thus often the loss factor i s reinsured with other
I insurance firms.
I
Mostly high-risk multinationals will seek insurance. Hence adverse incentives are built tn
by adjusting premiums in accordance with the perceived risks, screening out certain high-
risk applicants and by providing reduced premium to the companies engaged in activities
that are likely to reduce exproprialion risk.

Adverse incentives so~netimescan have tlie effect of increasing the riskiness o f certain
activities. Thus firms may neglect policies asked by host countries, thus the overseas
pro-iects may face thus proble~nsincluding that o f expropriation. Firms niay undertake
inveiments that were too risky and neglect certain policies responsive to the host
country's needs. This would lead to what one perceptive writer has called the "Moral
Hazard" (Keneeth Arrow) where the owner o f a failing business might commit arson to
collect on tlie fire insurance. In effect. purchasing political risk insurance i s eqi~ivalentto
purchasing a put option on the project. Tlie MNC will seek to exercise this put option
which eft'ectively involves selling its foreign project to the insurance company for tlie
amount o f coverage in whenever the market value o f the project falls below the insurance
claim.

There are two fundametital problerns with relying on insurance as a protection fro111
political risk. First, there is an assymetry involved. If an investnient proves unprofitable. it
is unlikely to be expropriated. Since business risk i s not covered, any losses niust be
borne by the firm itself. On tlie other hand. if the investment proves successful and is
expropriated. tlie fir111 i s co~npelisatedonly for the value its assets. Thus. although
insurance can provide partial protection from political risk, it i s not a co~nprehensive
soh~tion.
: 7Yegotiating the Environment Political Risk c~ndTax
Aspects

1/ 41 times firms try to reach an understanding with the host government before
~ndertakingan investment. This is called a "concession agreement'' in which rights and
responsibilities of both parties are defined. These concession agreements are negotiated
1 by multinational firms with developing countries. However, as the experience in
developing countries shows, such concession agreements are difficult to implement,
1 particularly in countries like Iraq, Iran, etc.

Structuring the Investment

Multinational firms try to increase the cost of interference by the host country to
minimise its exposure to political risk.

This can be done by keeping the local affiliate dependent on sister companies for markets
and.supplies. Suzuki has not yet given the gear-box technology to Maturi Udyog. In
addition, Maruti Udyog is yet purchasing key components from the Suzuki in Japan or its
sister companies in other countries. Thus by keeping R&D facilities, proprietary
technologies and key components under its control, a firm can raise the cost of
nationalisation.

Another strategy is to establish a single global trademark that cannot be legally

duplicated by a government. Control of transportation is user by some companies to
prevent any adverse action on their projects by the lost government.

One strategy can be develop external financial stakeholders in the venture's success.
Thus the capital is raised from the host and other governments, international financial
institutions, customers etc. rather than employing funds supplied or guaranteed by the
parent company. Thus not only this strategy provides additional funds, it also serves
another purpose of motivating other stakeholders to come to the company's help in case
the host country considers extreme steps like expropriation. The MNC and the other
investors can then legitimately ask for potential sanctions against the foreign government,
instead of relying on the uncertain of their home governments.

13.5.2 Operating Policies

In the realm of operating policies. multinational enterprises has less degrees of freedom
than, say, available at the pre-investment stage. These operating policies relate to :

a) Planned dis-investmant,
b) Short-term profit maximisation,
c) Changing the benefitlcost ratio of expropriation,
d) Developing total stakeholders,
e) Adaptation.
Some authors have suggested that a multinational firm may phase out its ownership of
- foreign investment over a fixed time period by selling all or a majority of their equity
interest to local investors. This may be diff~cultin practice. If the prices for buying out
the MNC interest are sealed in advance and if the project is less than successful, the
host government or the strategic partner in the host government may be unwilling to buy.
The multinational enterprise may try to recover maximum amount of cash from the local
operation. This can be done by deferring maintenance expenditures, producing lower-
'quality merchandise, setting higher prices and eliminating training programmes, This way,
while cash will be generated during the short run, the long-term effects of such policies
will harm the project. Without considering the ethical aspects, one would have to
consider such a short-sighted hit-and-run strategy only when faced with the danger of
'losing everything.

If the gavernment's objectives in an expropriation are rational, and provided the econoniic
benefits more than compensate for the costs, the multinational firm can initiate
Investing in Foreign programmes to.reduce the advantages of local ownership. It gives the incentive on the
Operations
part of the host government to expel the foreign promoter. Thus promoters of the foreign
project can establish local R and D facilities, develop export markets for the products of
the collaborator, training local workers and managers etc. to minimise the threat of
confiscation.

However, if a country is determined to expropriate a foreign project, he would not think

too much of the costs of replacing the foreign partner. He would be more interested in
advantages of local ownership. This has happened in most developing countries during
the last five decades. Thus the best possible strategy for the MNC would be to raise the
cost of expropriation. If the host country is threatened with stiff sanctions as a
consequence of their actions of expropriation, etc. the host country would think twice
before attempting any such action.

The better strategy for the foreign project 5-vould be to cultivate local individuals and
groups in such a way, that any adverse action against the project would affect the
influential local investors as well. If the consumers get dissatisfied by the quality of the
product of the local entrepreneur who displaced the foreign owner, their protests will
influence the government policies. During Janta Raj, the coca-cola withdrew from India,
but customers not quite satisfied by the substitute product welcomed the company back
when it finally came.

Firms are also trying a more radical approach to the polilical risk. They accept the
inevitability of a take:over or expropriation, and try to earn profits on the firm's resources
by entering into licensing and management agreements.

POSTEXPROPRIATION POLICIES
Generally the firm has some indication that its foreign project or a subsidiary is likely to
expropriated. Thus the multinational firm can open a dialogue with the host goverment
before the confiscation takes place. However, if these talks do not work out, post-
confiscation discussions would take place. These discussion go through the following
four phases, hostility increasing at every stage.

Rational negotiations

This is to maintain contact with the host government to pursuade him that the
expropriation was a mistake. This strategy may or may not work. If that host country was
using the confiscation weapon only as a bargaining counter, then these negotiations can
lead to a mutually acceptable solution.

Applying power

If these negotiations do not succeed, the firm can apply pressure on the host
government. It may deny vital components, technology, export markets etc. If the host
country already has this, the pressure may not bring in desired results.

Legal remedies

A basic rule of law is that legal relief must be sought in the host country. If that is not
helpful, the foreign firm can go to the home country court or the international court.
When the Enron power project at Debhol (Maharashtra) was sought to be closed or the
terms of reference were to be re-opened, the Enron went to the international court.

In most developing countries, the judiciary is subservient to the government. So the legal
redress is not possible. In India, where judiciary is quite independent of the executive, the
affected party, the foreign firm can hope for the legal remedy. However delays in the
court proceedings often make the resumption of the project non-feasible.

Suing the host country in the courts.of the home country has two hurdles. Accordjng to
the doctrine of sovereign immunity. a sovereign state cannot be tried in the court of +
another state without its consent. The act of state doctrine states that a nation is
 Political Risk and Tax
sovereign in its own borders and connot be sued in the courts of another country, even
Aspects
if its actions violated international law.

Thus arbitration is another avenue. In 1966, the International Centre for settlement of
Investment Disputes was established under the auspices of the World Bank. It provides
an international forum for private investors to start action against a foreign nation.
However the court decisions lack teeth and its influence is small in practice, when its
judgements are against the foreign nation.

Management Surrender

Faced with overhelming odds, managements of foreign firms just give up and settle for
whatever insurance payments are due to them.

Still the legal ownership of a facility is less important than the ability to derive cash flows
out of it even ofter expropriation, some foreign firms d o that by,
1

i a)
b)
Handling exports as in the past, bu; under a commission arrangement,
Furnishing tec'lnicai and management skills under a management contract,
c) Selling raw material and components to the foreign state.

) 13.7 MULTILATERAL INVESTMENT GUARANTEE

AGENCY
One of the i~~stitutions
at international level to provide protection against political risks is
Multinational Investment Guaranties Agency (MICA). It was started in 1988 and is a
member of world bank group. It has its own Board of Governers. It has a capital stock of
SDR dollars one billion. Its membershipis open to all world bank members.

MICA was created to enhance the flow to developing countries of capital and technology
for productive purposes and to supplerne~ltnational and private agencies supporting
foreign direct investment through their own insurance programmes. It provides viable
alternatives in investment insurance against non-commercial risks in developing countries
thereby creating investment and opportunities in those countries. Some of its niches for
investment insurance in world market are :

I) augmenting capacity of other public or private insurers of political risks through

co-insurance or reinsurance.

2) Insuring investment in countries restricted or excluded by the policies of other

national insurers or through specific policies adopted by governments.

3) serving investors who do not have access to other official political risks insurer.
I

4) providing coverage to investors of different nationalities in a multinational

syndicate, thereby affording convenience in insurance contracting and claim
settlement and

5) providing coverage of forms of investment not offered by other insurers and on

terms designed to be more effective in encouraging investment.

MICA offers coverage against political risks relating to 'transfer restrictions, expropriation,
breach of contract and war and civil1 disturbances. MICA policies and practices can be
'divided into two classes:

a lnvestment Marketing Services

b lnvestment Guarantee Services

a lnvestment Marketing Services : Marketing Core services fall into three broad
areas:
Investing i n Foreign
Operations I) Capacity building
2) 1nfo;mation dissemination
3) lnvestment facilitation.

I) Capacity building : The aim i s to strengthen the institutional activity of

countries to formulate and execute effectlve investment production
strategies. I t develops and helps to enhance skills knowledge and tools
available to investment intermediaries through training in cutting edge
marketing and management techniques. It will made client agencies self
sufficient by providing improved tools to internat~onaliseknowledge.

2) Disseminate information : MIGA has taken a leadership role in utilising on

live business information services to facilitate investment flows into
developing nation. The information about a country or detailed profile o f
any enterprise or sector. technical assistance i s provided.

3) lnvestment Facilitation : This is done by bringing together foreign

investors, promotion departments in sectoral ministries and other
Government or private sector organisations that are involved in promotion
or facilitation o f foreign direct investment. It has covered at least 100
countries and has partnership with public iind private sector institutions.

b Investment Guarantee Services : MIGA provides investment guarantee against

certain non-commercial risks i.e. political risk insuralice to foreign investors in
developing member countries. It af'fects long term upto 70 years political risk
insurance coverage to eligible investors for qualified investment in developing
member countries. It can insure new cross border investments originating in any
MIGA member country destined for any developing member country. It insures
investments in a wide range o f industries. Types o f foreign investments include
equity. shareholders loans and shareholders loan guarantee. Technical assistance
and managing contracts and franchising and licencing agreements can also be
guaranteed by MIGA. It has provided investment facilitation in mining sector in
Africa.

Check Your Progress A

I Is there any difference between political risk and political uncertainty?

2 Name the approaches to assess and measure political risks.

3
3 Name any two countries where tnultinational corporations have lost investments
due to political reasons.

13.8 INFLUENCE OF TAX POLIC'Y ON FOREIGN

INVESTMENTS
The tax policy influences investment decisions through its effects on the cost o f capital
and returns to different activities. Tax policies influence Investment decisions o f
multinational firms through a complicated interaction o f home-and-host country taxation
arid differences across countries in the treatment o f debt and equity tinance.

Foreign subsidiaries of U.S. firms that are financed by parent equity gctie~.allyface higher
costs o f capital than do local firms in foreign markets.
 The cost of capital is affqted not only by the pre-tax financial costs but also by Political Rislr and Tax
Aspects
parameters in "home" (residence) and "host" (source) countries, such as tax-incentives
created by the host-country's tax rates, investment incentives and depreciation rules, and
variation (over time and across firms) in the tax costs of repatriated dividends of foreign
subsidiaries. The tax rates can affect investment. Each percentage point increase in the
cost of capital reduces by 1-2 percentage points a subsidiary's rate of investment. Here
the rate of investment is measured by the investment during the year divided by the
beginning of the year capital-stock.

It may be noted that only the rate of investment is considered alongwith the tax policy,
not the decision to invest or not.

Alternative Minimum Tax (AMT)

Some countries impose Alternative Minimum Tax on all investments.

As it does in the tax systems, the alternative minimum tax (AMT) complieates the foreign
investment incentives imposing such taxes. In the case of U.S. corporations, in 1990, 53%
of assets and 56% of foreign-source income of U.S. multinationals was accounted for by
firms subject to the LWT.

The AMT's restrictions on deductions, inclusion of income excluded under the regular tax,
lower tax rate than that in t:,e regular tax system and limitations on foreign tax credits
modify the ~ncentivesfor subsidiaries. The research shows that the AMT may strengthen
the incentive for the AMT firms to invest abroad rather than in the U.S.

Effects of Accounting Practices

There is an assumption that firms exploit fully incentives for investment offered by the tax
code, whether or not tax rules differ from those used to measure income for financial
accounting purposes. Research on responsiveness in countries where tax accounting and
financ~alaccounting requirements are different ("two-book' countries i.e. the U.S.A.) as
compared to the responsiveness in countries in which tax accounting and financial
accounting are identical ("one-book" country, e.g. Germany) have yielded interesting
results. It is shown that differences in accounting regimes generate significant differences
in the differences in the responsiveness of investment to tax policy. In particular, firms
operating in "purc." one-book systems behave as though they face additional costs when
taking advantage of investment incentives.

13.9 INTERNATIONAL TAX RULES AND

FINANCING AND INVESTMENT DECISIONS

Income from international investment is subject to several layers of taxation. Host

' countries typically increase corporate taxes on income earned within their jurisdictions
regardless of the ownership of capital. Many countries subject foreign-source income to
home country's personal income taxation. In some cases corporate surtaxes are imposed.
by the home government. Countries also impose withholding taxes on income repatriated
' from abroad.

Over lapping tax jurisdictions subject certain foreign-source income to both home-country
and host-country taxation.

Some countries provide tax relief to foreign source income. The exact nature and extent of
double taxation relief differs across countries and types of income.

One way to provide double tax relief is to exempt foreign-source idcome from the home-
'
country taxation. In this case, only taxes charged for foreign-source income are the
iicome taxes and withholding taxes imposed by the host government. Only a few
countries (e.g. the Netherlands) adopt this "territorial" system under which there is no
residence-based taxation of foreign-source income. As a result of bilateral tax treaties, the
exemption method is widely prevalent. A pair of countries can agree to exempt from
domeslic taxation their resident's income earned in the other country.
Investing in Foreign Most countries assert their right to tax the income of their residents regardless of where
Operations
the income is earned. However credit or deduction is allowed for [axes paid to the host
government.

In practice, no country allows for unlimited foreign tax credits. Foreign tax credits are
limited to the home-country tax liability on foreign-source income. Investors whose
potentially creditable foreign taxes exceed the actual tax credit limits are said to be in an
"excess credit" position. Thus foreign tax-credit limits are likely to be binding when the
firm invests in a high-tax country. If the foreign taxes paid are less than the limitation on
credits. the firmis said to be in a "deficit credit" or "full-credit" position.

When a multinational corporation invests in several foreign countries. it is normally

allowed to pool the income repatriated from all these countries and credit against the
domestic taxes due on this income. In doing so, it can use excess credits from operations
in one country to reduce any domestic taxes due on operations in another- country. If, in
total. its credits are sufficient to wipe out its domestic tax liabilities on its worldwide
foreign operations. then no domestic taxes are due. In this case, its final net income is
the same as in the case of domestic one.

In addition to providing foreign tax credits, residence system countries typically allows
their firms ro defer home-country tax on certain types of foreign-source income until the
income is repatriated.

In general, active business income belongs in this category. Income from passive
investments (e.g. dividends and interest) is typically taxed on an accrual basis. Most
countries do not allow tax deferral for foreign-branch income. Tax deferral can be an
Important source of tax benefits since under cetlain cond~tlons,it may lower the tax rate
on foreign investment.

The assymatric treatment of a given economic activity across different jurisdictions [nay
significantly influence the way multinationals allocate capital between domestic and
foreign operations.

13.10 POSSIBLE ISSUES IN THE TAXATION OF

BUSINESS INVESTMENT ABROAD

As at present, the issues of business investment abroad by lndian businesses have not
attracted much consideration, because stepping up exports in a priority in view of the
urgent need of increasing the rate of economic growth.

Thus income earned by exports are given liberal treatment. Incomes earned by Indian
businesses abroad are treated quite sympathetically.

However, if in the course of next five to ten years (or even twenty years) India becomes
a major industrial nation with its businesses having spread their operations in many
countries, the tax considerations for foreign investments and tax treatment of inconies
earned abroad by lndian businesses may become an important issue.

The discussion of issues in the area of lndian taxation of business investment abroad,
will not be out of context.

'There are many factors responsible for a company's decision to invest abroad. Key raw
materials being located abroad, an established market cl.>sed to everyone except local
producers, radier access to markets or to suppliers, lower transportation costs or faster or
more certain shipments, cheaper power, cheaper labour (with allowances for differences in
productivity), access to national points of view useful in merchandising or in research
skills, greater acceptability by private or government purchasers, and more advantageous-
terms of financing are among the familiar reasons for co~~sidering investment in a plant
abroad.
 Tax advantages are only one among many factors. Tax considerations are not likely to be Political Risk and Tax
~spbcts
decijive in determining whether to invest abroad. But they are likely to influence the
decision as to the ways to invest abroad-whether as branch or subsidiary and with what
capital structure, once the major decision to invest abroad has been made. One view is
that the company should make the decisions on the basis of pre-tax rather than afler tax
I returns, because, in one way or another over time, tax burdens tended to work about the
same level in all the major countries.
1
' ,It is also said that the general political and social climate controls investment i~ other
.countries. This is particularly true of developing countries. If the general climate is good,
the itax structure will not be bad, but if the general climate is bad, the best tax system or
tax ~:xemptionswould not make any difference. No tax law can induce investment in an
inherrently unattractive climate.

Do he foreign tax credits or exemption, either fully or partially, of income from

investments abroad encourage or discourage the country's foreign investment or if the
effects of such measures on such investments are neutral?

One can say that the foreign tax credit relieves income receives from abroad from the
domestic tax which it would ordinarily pay. On that basis, one could say that the foreign
tax credit encourages investment abroad.
II
However, full domestic taxation of foreign-source income which has already been taxed by
the country where it was earned would amount to double taxation and would therefore
discourage investment abroad. The foreign tax credit merely removes a tax
discouragement. Thus the foreign tax credit is thus necessary to secure the country's tax
I
neui.rality between domestic and foreign investment. To the extent that foreign investment
is in addition to rather than an alternative to domestic investment, the comparison with
taxes paid by other corporate investors in other countries seems more significant than the
I com,parison with taxes on domestic investment.
-
13,.11 LET US S U M U P
-
Political risk can be defined as the exposure to a change in the value of an investment or
to the cash position resultant upon government action. Governments intervene in their
national economies and in so doing, increase the level of political risk that the
international firm faces. Political risk ranges from exposure to changes in tax legislation,
through the impacts of exchange controls1 to restrictions affecting operations and
financing in a host currerrcy. Multinationals are concerned with the measurement and
management of political risk. There are various approaches to the measurement of political
risk - most of them are subjective in nature. As far as political risk is concerned, one
waq is to avoid it. Another approach is through insurance. Fees vary according to the
country concerned and the type of risk insured. The MNC may reach an agreement with
the host government prior to investment, though the successive governments may not
honour such an agreement. Keeping the foreign subsidiary dependent on group
con~paniesfor supplies and markets - the integrated operations approach - is a useful
means of management of political risk. By surrendering the legal ownership, but by
keeping the cash flows intact by other means, the adverse impact of the host country's
actions can be circumsvented. The tax policy, both of home and host countries influences
investment decisions of Multinational Corporation through its effects on the cost of
capital and return to different countries.

13.12
- KEY W O R D S
Ba;iness Environment Risk Index (BERI) : It is an index that tries to include political,
economic and country related subjective factors.
EUI-omoney: It is an financial ~nagzinewhich evaluates country risk on the basis of
weights.
 Investing i n Foreign
One book system : A system in which tax accounting and financial accounting are
,,Operations
identical.
Repatriation : Allowing income earned by Multinational Corporation in host country to
home country.

13.13 TERMINAL QUESTIONSIEXERCISES

I. Explain the various ways o f assessing and managing political risk by multinational
corporation.
2. How does tax policy effect foreign investment? Do accounting practices o f
countries have any influence on it?
3. Discuss the possible issues in the taxation o f business investment abroad.
4. What are ihe reasons for making investment abroad by Multinational Corporations?
- s
Politiral Risk and Tax
SOME USEFUL BOOKS Aspects

Sl~apiro,Alan C., 'Mukinational Financial Management f Prentice Hall o f India Pvt. Ltd.,
New Delhi.

Shaprio Alan C., "Foundations of Mullinational Financial Management", Prentice-Hall

International, Inc. (USA).

PVorld Bank Reports and Government o f India's Economic Survey.

Apte, P.G., 'Inrernutional Financial Managenlent ', Tata McGraw-Hi ll Publishing Company
[Ad.,

13rrunza, Vihang R, Singh Devi and Srinivasan T.S. 'International Business Finance'
Global Business Press, New Delhi.
 Table Al : Present Value Interest Factor
PC'IF(k, n) = ( I + k ) "

Period
n I% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%

0 1.000 1.ooo 1 .000 1.000 1.000 1.000 1.000 1.000 1.000 1.ooo 1.000 1 ..000 1.000
I 0.990 0.980 0.97 1 0.%2 0.952 0.943 0.935 0.926 0.917 0.909 0.90 1 0.893 0.885
2 0.980 0.%1 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783
3 0.971 0.924 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.73 1 0.712 0.693
4 0.%1 0.924 0.889 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.61 3
5 0.95 1 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543

6 0.942 0.888 0.838 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425
8 0.923 0.853 0.789 0.73 1 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 '0.376
9 0.9 14 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.36 1 0.333
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0;322 0.295

II 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.3 17 0.287 0.261
12 0.887 0.788 0.710 0.625 0.557 0.497 0.444 0.397 0.356 0.3 19 0.286 0.257 0.231
13 0.879 0.773 0.68 1 0.60 1 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204
14 0.870 0.758 0.66 1 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181
I5 0.861 0.743 0.642 0.555 0.48 1 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160

16 0.8'53 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141
-17 0.844 0.714 0.605 0.513 0.436 0.377 . 0.31 1 0.270 0.23 1 0.198 0.170 0.146 0.125
18 0.836 0.700 0.587 0.494 0.416 0.350 0.2% 0.250 0.212 0.180 0.153 0.130 0.111
19 0.828 0.686 0.570 0.475 0.3% 0.33 1 0.276 0.232 0.194 0.164 0.138 0.116 0.098
20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087
1.
25 0.780 0.6 10 0.478 0.375 0.295 0.233 0.184 0.146 ., 0.1 16 0.092 0.074 0.059 0.047

30 0.742 0.552 0.412 0.308 0.23 1 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026
 Table A l (Contd.)

I Period
n 14%

0 . ~ 6 nnn n nnn
0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.002 0.001 V.UUU ."."U"
 --

Table A2 : Present Value Interest Factor for an Mnuity

1
1 --
(1 +kY
P VIFA (4 n) =
k
Period
n I% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%

0 1.000 1.000 1.000' 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.ooO 1..000 1.ooo
1 0.990 0.980 0.971 0.%2 0.952 ' 0.943 0.93 5 0.926 0.917 0.909 0.901 0.893 1.885
2 1.970 1.942 0.913 . l.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668
3 2.941 2.884 2.829 - 2.775 2.723 2.673 2.624 2.577' 2.53 1 2.487 2.444 2.402 2.361
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974
5 4.853 4.713 4.580 4.452 4.329 4.212 .4.100 3.993 3.890 3.791 3.696 3.605 3.517

6 5.795 5.601 5.417 5.242 5.076 4.91 7 4.766 4.623 4.486 4:355 4.23 1 4.111 3.998
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.%8 4.799
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132
10 9.47 1 8.983 8.530 8.1 11 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426

11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687
12 11.255 ,10.575 9.945 9.385 8.863 8.384 ' 7.943 7.536 7.161 6.814 6.492 6.194 5.918
13 12.134 1 1.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122
14 13.004 12.106 1 1.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302
I5 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 ' 7.191 6.811 6.462

16 14.718 13:578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 7.379 6.974 6.604
17 15.562 14.292
14.992
13.166
13.754
12.166
12.659
11.274
11.690
10.477
10.828
9.763 9.122 8.544 8.022 7.549 7.120 6.729 4
18
19
16.398
17.226 15.678 14.324 13.134 12.085 11.158
10.059
10.336
9.372
9.604
8.756
8.950
8.201
8.365
7.702
7.839
7.250
7.366
6.840
6.938 P
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.%3 7.469 7.025 B*
25 22.023 . 19.523 17.413 15.622 14.094 12.783 ' 11.654 10.675 9.823 9.077 8.422 7.843 7.330

30 25.808 22.397 19.600 17.292 . 15.373 13.765 12.409 1 1.258 10.274 9.427 8.694 8.055 7.4%

(Contd.)